Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2011. Pigskin received payment of 35,000 British pounds on May 8, 2011. The exchange rate was £1 = $1.54 on April 8 and £1 = 1.43 on May 8. What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar)

Question

Quizplus · Accepted Answer

Step 1: Calculate the amount of revenue in USD

35,000 British pounds x ($1.54/£1) = $53,900 (revenue recognized on April 8, 2011)

Step 2: Calculate the amount of cash received in USD

35,000 British pounds x ($1.43/£1) = $49,950 (cash received on May 8, 2011)

Step 3: Determine the foreign exchange gain or loss

$49,950 - $53,900 = -$3,950 (loss)

Rounded to the nearest dollar, the foreign exchange loss recognized should be $3,850. Therefore, the best answer choice is D.